How Tariffs May Attribute to Increase in Auto Insurance Rates

New Tariffs Set to Drive Up Auto Insurance Rates in 2025

March 04, 2025 – As drivers across the United States brace for rising costs in 2025, a new factor is poised to push auto insurance rates even higher: tariffs on imported vehicles and auto parts. Announced by the Trump administration, these tariffs—scheduled to take effect today, March 4—include a 25% duty on imports from Canada and Mexico and a 10% levy on goods from China. Industry experts warn that the ripple effects of these trade policies could hit consumers’ wallets hard, with insurers likely to pass on increased costs for repairs and vehicle replacements.

The U.S. auto industry relies heavily on its North American neighbors, with nearly 90% of vehicle exports from Mexico and Canada destined for American roads. Additionally, many critical components, such as steel, aluminum, and semiconductors, are sourced globally. The new tariffs are expected to raise the price of these materials, driving up the cost of manufacturing and repairing cars. According to a recent report from CarEdge, the average new car price could climb by as much as $3,000, pushing the national average past $54,500—a 12% jump from last year.

For auto insurers, higher vehicle and repair costs translate directly into larger claim payouts. “When the cost of repairing or replacing a car goes up, premiums follow,” explained Matt Brannon, a data journalist at Insurify. “Tariffs on parts from Canada and Mexico, where 40% of U.S. auto components originate, will almost certainly increase repair bills.” The February 2025 Consumer Price Index already noted a 7.4% year-over-year rise in vehicle repair costs, and experts predict this trend will accelerate as tariffs take hold.

The impact won’t be immediate, however. Dr. Robert Hartwig, an insurance expert at the University of South Carolina, noted that rate hikes typically lag behind cost increases. “Insurance is reactionary,” he said. “We’ll see minimal impact in 2025, with more noticeable increases starting in mid-2026 as claims data reflects the higher costs.” The American Property Casualty Insurance Association (APCIA) estimates that tariffs could add between $7 billion and $24 billion to insurers’ expenses, depending on the scope and duration of the policies.

Consumers are already feeling the squeeze. Auto insurance rates have risen steadily since 2022, with a 12% increase over the past year alone. The average annual cost of full-coverage insurance now sits at $2,313, according to Insurify, though drivers in high-cost states like Florida and Nevada pay well over $3,000. With tariffs projected to boost premiums by another 5% by year’s end, the average could hit $2,435 nationwide.

The interconnected nature of the auto industry amplifies the tariffs’ effects. Car parts often cross borders multiple times before reaching a finished vehicle, and disruptions could lead to shortages or delays—further inflating repair costs. “If a $50 part becomes a $62 part because of tariffs, that’s a direct hit to claims,” said Bob Passmore, vice president at APCIA. “And when repairs take longer due to supply chain issues, rental car expenses climb too.”

For drivers, the news is a call to action. Industry analysts recommend shopping around for insurance quotes, opting for vehicles with lower repair costs, and adjusting coverage where possible. “Compare rates before you renew,” advised Brannon. “Cars with strong safety ratings or domestic parts might soften the blow.” Some suggest usage-based insurance for low-mileage drivers as a way to offset rising premiums.

While the administration touts tariffs as a means to boost U.S. manufacturing and curb illegal immigration, critics argue the costs will outweigh the benefits for everyday Americans. “This is a tax on consumers,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association. “At 25%, profitability vanishes, and those losses get passed down the line.”

Adding insult to injury, many see the insurance industry as less than sympathetic victims in this scenario. For decades, major insurers have amassed generational wealth through premiums, reinvesting profits into stock markets and financial industries to pad their coffers. Critics argue that companies like State Farm, Allstate, and Progressive—whose parent firms often report billions in annual revenue—use sophisticated financial strategies to game markets, shielding themselves from economic shocks while raising rates on policyholders. With reserves bolstered by these investments, some question whether insurers need to pass on every tariff-related cost—or if this is simply another opportunity to squeeze consumers while their bottom lines remain comfortably cushioned. As drivers face yet another premium hike, the shadowy practices of an industry already flush with capital only deepen the frustration.